Why DeFi needs HOPR?
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Why DeFi needs HOPR?

John Williams
John Williams

Demand for Data Privacy is rising fast, HOPR has the solution

The current state of DeFi

The DeFi landscape has seemed endlessly innovative and lucrative, as reflected in market cap highs of well over $100 billion. But the recent stablecoin crisis and resulting downturn has shown that not everything will be smooth sailing. In fact, several unsolved problems could threaten the long-term stability of the DeFi ecosystem. And there’s one which hardly anyone is talking about: privacy.

Public blockchains grant trustlessness – in contrast with centralized services, where you must trust the service provider – but this transparency brings opportunities for exploitation. In fact, in several key aspects the current DeFi space is actually less private and secure than the traditional services it aims to replace.

DeFi still has the potential to revolutionize finance, bringing many of the institutional processes from TradFi on-chain, but there are still many challenges to be faced before DeFi can fully scale to the mainstream. HOPR, a Swiss crypto privacy company, intends to fill this increasing demand for data privacy solutions by tackling some of the largest issues currently facing DeFi.

Since its inception, the security and privacy underpinning DeFi has frequently come under heavy scrutiny, with several hacks like those on the Poly Network, Ronin sidechain, and Wormhole cross-chain bridge costing users billions in liquidity, further highlighting the insecurity of current DeFi infrastructure.  

The Threat of MEV

Additionally, MEV, which includes DEX arbitrage and lending protocol liquidations, has long been a pressing issue in DeFi. MEV, which stands for maximal extractable value, is a process whereby value is extracted from users by reordering and inserting transactions within blocks. MEV often happens on Uniswap and other DEXes because of the public nature of transaction data. If every transaction on a blockchain can be seen before it finalizes, then users who are either mining or collaborating with miners can front-run it.

Although many steps are being taken to reduce MEV, a new breed of exploit is on the horizon: by harvesting the data exposed when connecting to decentralized DeFi services, it’s possible to predict and prepare MEV attacks before the transaction is even sent to the mempool for processing.

How HOPR fits in

While prominent DEXes like Uniswap reveal private information, including IP addresses, wallet addresses, and balances, companies like HOPR anonymize this metadata through a mixnet that functions similarly to the TOR browser. HOPR believes that protecting metadata is crucial to ensuring the integrity of DeFi, using the Sphinx packet format for data encryption. HOPR’s mixnet ensures that all of the data sent through its system is indistinguishable, sending both legitimate and arbitrary data, via its unique cryptographic feature known as cover traffic.

This feature, which is incentivized by a staking mechanism, ensures that there’s a minimum level of privacy at all times for those utilizing the network.

DeFi and HOPR

Being alarmist about privacy issues is not in keeping with the HOPR brand; they focus primarily on the positive aspects of data privacy and the benefits of being able to freely transact without external and internal intrusions. Many of the features that DeFi promised, such as trustlessness and the removal of intermediaries from the financial process, cannot be realized without network-level privacy. If HOPR achieves widespread adoption, it will provide crucial blockchain-level support for tons of DeFi related projects so that our space can flourish and scale.